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Is Syarikat Takaful Malaysia Keluarga Berhad's (KLSE:TAKAFUL) Recent Performance Tethered To Its Attractive Financial Prospects?

Syarikat Takaful Malaysia Keluarga Berhad's (KLSE:TAKAFUL) stock up by 4.6% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. In this article, we decided to focus on Syarikat Takaful Malaysia Keluarga Berhad's ROE.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Syarikat Takaful Malaysia Keluarga Berhad

How To Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Syarikat Takaful Malaysia Keluarga Berhad is:

20% = RM400m ÷ RM2.0b (Based on the trailing twelve months to September 2022).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every MYR1 worth of equity, the company was able to earn MYR0.20 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Syarikat Takaful Malaysia Keluarga Berhad's Earnings Growth And 20% ROE

At first glance, Syarikat Takaful Malaysia Keluarga Berhad seems to have a decent ROE. On comparing with the average industry ROE of 11% the company's ROE looks pretty remarkable. This certainly adds some context to Syarikat Takaful Malaysia Keluarga Berhad's decent 12% net income growth seen over the past five years.

Next, on comparing with the industry net income growth, we found that Syarikat Takaful Malaysia Keluarga Berhad's growth is quite high when compared to the industry average growth of 4.0% in the same period, which is great to see.

past-earnings-growth
past-earnings-growth

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. Is Syarikat Takaful Malaysia Keluarga Berhad fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Syarikat Takaful Malaysia Keluarga Berhad Efficiently Re-investing Its Profits?

Syarikat Takaful Malaysia Keluarga Berhad has a three-year median payout ratio of 28%, which implies that it retains the remaining 72% of its profits. This suggests that its dividend is well covered, and given the decent growth seen by the company, it looks like management is reinvesting its earnings efficiently.

Moreover, Syarikat Takaful Malaysia Keluarga Berhad is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years. Our latest analyst data shows that the future payout ratio of the company is expected to rise to 36% over the next three years. However, the company's ROE is not expected to change by much despite the higher expected payout ratio.

Summary

Overall, we are quite pleased with Syarikat Takaful Malaysia Keluarga Berhad's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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